This guide covers what changed in 2026, the rules for under-construction and let-out flats, joint loans, and worked examples on a ₹1.2 crore Bangalore flat.

What changed for home loan tax benefits in 2026?

  • New law. The Income-tax Act, 2025 came into force on 1 April 2026, replacing the 1961 Act. The CBDT said the rewrite does not alter the underlying tax policy, and the Income-tax Rules, 2026 were notified on 20 March 2026.
  • Tax year. Income earned from 1 April 2026 falls under the new Act. The return you filed in 2026 for 2025-26 was still under the 1961 Act.
  • New numbers. Interest and other house property deductions sit in Section 22. The principal deduction, along with stamp duty and registration, sits in Section 123. The new regime is Section 202, which remains the default unless you opt out.
  • Same limits. Budget 2026-27 made no change to income tax rates, slabs, surcharge or cess. The ₹2 lakh interest cap and ₹1.5 lakh Section 123 limit are unchanged.

What can I claim on a self-occupied home?

  • Interest (Section 22): up to ₹2 lakh a year under the old regime, provided the home is acquired or constructed within five years from the end of the tax year in which you borrowed; otherwise the cap is ₹30,000. You need an interest certificate from the lender.
  • Principal (Section 123): up to ₹1.5 lakh a year under the old regime, but this limit is shared with EPF, PPF, ELSS, life insurance, tuition fees and others. Stamp duty and registration count in the year you pay them.
  • New regime: no interest or principal deduction for a self-occupied home.
  • Section 80EEA (extra ₹1.5 lakh interest for affordable homes) covered only loans sanctioned from 1 April 2019 to 31 March 2022. A loan taken today does not qualify.

One trap for salaried buyers: if your employee PF is 12% of a large basic salary, it may already fill most of the ₹1.5 lakh Section 123 limit. On a ₹30 lakh CTC with basic at half, employee PF alone is ₹1.8 lakh a year, so your home loan principal adds nothing under that section.

How does tax work on an under-construction flat?

Nothing is deductible while the flat is being built. Interest paid before completion (pre-EMI or the interest part of full EMIs) is added up and claimed in five equal instalments, starting in the tax year construction is completed. For a self-occupied home, that instalment shares the same ₹2 lakh cap with the current year's interest. On a large loan, current interest alone often exceeds ₹2 lakh, so the instalment adds nothing; we show the numbers in Pre-EMI vs Full EMI in Bangalore: ₹1.2 Cr Flat Math 2026.

Principal repaid during construction does not qualify under Section 123 either; the deduction starts after completion. GST on an under-construction flat is a cost with no deduction. Note too the five-year rule: if your project slips beyond five years from the end of the year you took the loan, the self-occupied interest cap falls to ₹30,000. Check the RERA completion date before you borrow early.

What if I let the flat out?

For a let-out property, there is no cap on the interest you can set against rent, under either regime. Rent is reduced by municipal taxes and a 30% standard deduction before interest is subtracted. The difference between regimes is what happens to a loss.

  • Old regime: a house property loss can be set off against salary up to ₹2 lakh a year. The excess is carried forward and set off only against future house property income.
  • New regime: a house property loss cannot be set off against salary or carried forward, according to the sources we checked. So under the new regime, interest beyond your net rent is simply lost.

Our general explainer on rent taxation is How Rental Income From Property Is Taxed in India.

Worked example 1: self-occupied ₹1.2 crore flat, ₹30 LPA

Assumptions: salary ₹30 lakh, ready flat bought for ₹1.2 crore, loan ₹90 lakh at 8.00% for 20 years. EMI ₹75,280. Year-one interest about ₹7.13 lakh, principal about ₹1.90 lakh. We assume Section 123 is filled by PF and principal, and no HRA (you now live in your own flat), no Section 80D and no NPS.

  • Old regime: ₹30,00,000 − ₹50,000 standard deduction − ₹2,00,000 interest − ₹1,50,000 Section 123 = ₹26,00,000 taxable. Tax: 5% of ₹2.5 lakh (₹12,500) + 20% of ₹5 lakh (₹1,00,000) + 30% of ₹16 lakh (₹4,80,000) = ₹5,92,500, plus 4% cess = ₹6,16,200.
  • New regime: ₹30,00,000 − ₹75,000 = ₹29,25,000 taxable. Tax: ₹20,000 + ₹40,000 + ₹60,000 + ₹80,000 + ₹1,00,000 on the first ₹24 lakh, plus 30% of ₹5.25 lakh (₹1,57,500) = ₹4,57,500, plus 4% cess = ₹4,75,800.
  • Result: the new regime is cheaper by ₹1,40,400, even with the home loan.

Where is the break-even? At incomes where both regimes are in their top slab, the old regime wins only when total deductions, including the ₹50,000 standard deduction, exceed about ₹8.5 lakh. At ₹20 lakh it is about ₹7.6 lakh. The home loan gives at most ₹3.5 lakh of that (₹2 lakh interest plus ₹1.5 lakh Section 123). You would need large HRA, NPS, health insurance and similar deductions on top, and HRA usually ends once you move into the flat.

Worked example 2: the same flat, let out in Whitefield

ANAROCK's Q2 2026 report quotes ₹30,000 to ₹46,000 a month for a 1,000 sq ft 2 BHK in Whitefield. Say you let the flat for ₹40,000 a month, or ₹4.8 lakh a year, and ignore municipal tax for simplicity.

  • Net annual value after the 30% standard deduction: ₹4,80,000 × 0.70 = ₹3,36,000.
  • Less interest of about ₹7,13,000 = a house property loss of about ₹3,77,000.
  • Old regime: set off ₹2,00,000 against salary, saving about ₹62,400 at the 30% slab with cess. Carry forward ₹1,77,000.
  • New regime: rental income is wiped out by the interest, so you pay no tax on the rent, but the ₹3,77,000 loss is not set off or carried forward.

In this case, the old regime gives roughly ₹62,400 more relief from the property, plus up to ₹1.5 lakh under Section 123 if you have room. Whether that is enough to beat the new regime still depends on your other deductions. Run both calculations every year. The new regime is the default, and Section 202(4) of the 2025 Act provides the option to opt out of it.

How do joint home loans work for tax?

If you and your spouse are both co-owners and co-borrowers, and each pays the EMI from your own income, each of you can claim up to ₹2 lakh of interest and up to ₹1.5 lakh under Section 123 on your share, under the old regime. Each needs a lender certificate showing their share. Being a co-borrower without being a co-owner does not give a deduction. For the full set of rules and pitfalls, see Joint Home Loans: Benefits, Tax Breaks & Pitfalls.

Joint ownership helps most when both partners are in the old regime with other deductions. If one partner is on the new regime, their share of the deduction is wasted.

Checklist to claim home loan tax benefits

  • Decide your regime for the year. Compare both calculations, including your home loan figures.
  • Collect the lender's provisional and final interest certificates every year.
  • Keep the stamp duty and registration receipt; claim it in the year paid under Section 123.
  • For under-construction flats, record the possession or completion date and add up all pre-construction interest.
  • If let out, keep the rent agreement and municipal tax receipts.
  • Declare the property as self-occupied or let out correctly in your return.

Our older national guide is Home-Loan Tax Benefits: Sections 24, 80C & 80EEA. To see which homes fit your budget, browse Ready To Move, Bangalore.